Martek Biosciences Corporation’s (MATK) third-quarter fiscal 2010 earnings (excluding special items) of 38 cents per share surpassed the Zacks Consensus Estimate by 2 cents and the year-ago earnings by 11 cents.
On a reported basis (including special items), the company earned 35 cents per share in the reported quarter as against 27 cents in the year-ago quarter. The higher earnings in the reported quarter were driven by a surge in sales. Sales in the quarter benefited from the purchase of Amerifit Brands in February this year coupled with a rise in nutritional ingredient sales.
Revenues climbed 51% year over year to $117.2 million in the reported quarter. Strong performance was witnessed across all segments. Revenues were above the Zacks Consensus Revenue Estimate of $114.0 million.
Nutritional ingredient sales climbed 25% to $93.4 million. Branded consumer health product sales of Amerifit came in at $20.3 million in the reported quarter. Others accounted for the balance. The increased demand for the company’s nutritional ingredients in ex-US markets (particularly Asian markets) led to strong sales in both the infant formula and non-infant formula markets. Gross margin in the quarter climbed to approximately 50% in the quarter from 44% in the year-ago period.
Research and development (R&D) expenses in the reported quarter climbed 28.8% to $8.5 million. The rise was primarily attributable to the company’s pre-clinical research activities. Selling, general and administrative (SG&A) expenses in the reported quarter climbed 72% to $18.9 million. Expenses associated with advertising and promotion climbed to $5.6 million in the reported quarter as against $0.4 million in the year-ago quarter.
Management stated that the strong cash generation since the acquisition has helped it repay the debt associated with the purchase of Amerifit earlier than expected. Currently, the company is essentially debt-free.
Outlook
Martek provided guidance for the fourth quarter of 2010. The company expects earnings per share (excluding special items) in the range of 35 cents to 39 cents. The Zacks Consensus Estimate for the quarter is 38 cents per share.
Revenues for the final quarter of fiscal 2010 are expected in the range of $87 million – $91 million. Including contributions from the Amerifit acquisition, revenues are projected in the range of $108.0 million – $113.0 million. The Zacks Consensus Revenue Estimate is $115 million.
Martek, which focuses on the development and commercialization of nutritional products from microbial sources, expects fiscal 2010 revenues to lie within $439 million and $444 million. The Zacks Consensus Revenue Estimate for fiscal 2010 is $443 million.
Our Recommendation
Martek Biosciences is a Zacks #3 Rank (‘hold’) company, which indicates that the stock is expected to perform in line with the overall US equity market for the next 1 to 3 months. Our long-term Neutral stance on the company indicates that the stock is expected to replicate its short-term performance, but over 6+ months. Consequently, we advise investors to retain the stock over the time-period.
The lack of estimate revisions by the analysts covering Martek implies that there is no clear directional pressure on the stock. This supports our short-term and long-term stance on the stock.
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